Unless personal debt is renegotiated, we face collapse

Reckless banks who are sponging off the taxpayer can’t lecture us on ‘moral hazard’, writes Carol Hunt

‘ICAN calculate the motions of heavenly bodies but not the madness of people,” said Isaac Newton after the collapse of the infamous South Sea Bubble. Nor his own delusion, he may have added, as he lost an estimated £20,000 on his investments — a very hefty sum at the time.

This anecdote may provide a small solace to those of us who, in defiance of our reason, bought insanely overpriced homes at the height of the madness that was Ireland's property boom.

So what if we were threatened with perpetual exclusion from a “home of our own” — that elusive Irish dream? And who cares now if our original troika — the banks, allied with our Government and the property developers — sold us a lie that we will, quite literally, spend our lives paying for?

Here I have to confess an interest. Yes, my home is in negative equity. And as at the time of my admitted insanity I was studying economic history, I should have had more than a casual acquaintance with the dynamics of a property bubble. Mea culpa.

My misfortune may, of course, influence my opinion — I am only human — but I hope that I would try to heed the Kantian categorical imperative, which states that one should “act only to that maxim whereby you can, at the same time, will that it should become a universal law”.

When I told the Quinn side of this couple that I couldn't understand how being better off than our parents meant we needed two incomes to buy a house they (on one tradesman’s salary) could have easily afforded, he explained that the scourge of emigration had ended, the country was employed, things were good and our children would all remain home with us.

So now I console myself with Newton — hey, even a genius can f**k up.

Particularly as — oh, the irony! — emigration has now become a luxury that many of us cannot afford.

The word “fey” has been jumping uninvited into my brain in recent weeks, most often after I've had a conversation with a friend or relative who has little to be cheerful about. “Fey” is an old Middle English word, which describes a person who is in “unusually high spirits, as were formally thought to precede death, calamity or a great evil”.

At present, it seems half the country is feeling fey. How else to describe the exuberant and irrational reaction to the latest news on the negative-equity crisis, that two Irish banks will, in undefined special circumstances, allow homeowners in negative equity to carry their inflated debt burden on to a new property?

“Light at the end of the debt tunnel” and a “lifeline for those in negative-equity nightmare” was how this marvellous piece of news was disseminated to the populace.

Well yes, the so-called “negative-equity loans” will only be offered to a very select few with large, secure incomes — which excludes the private sector and lower echelons of the public sector straight off.

And no, the banks don't see a moral problem with handing out 100 per cent-plus loans that will consume most of these “lucky” borrowers' disposable income for the next 40-odd years or more. (And don't mention the trackers).

‘Emigration has become a luxury that many of us cannot afford’

But let's wrap this latest morsel in bows and bright artifice and pretend that things are not really how they are — which, to be quite frank, is catastrophic.

To face the facts is not unpatriotic; to distort reality is. You cannot sort a problem unless you squarely face it. And yet that is what the Government is refusing to do by paying only lip-service to the crisis of personal debt.

No one in authority has admitted that what must be implemented is a universal debt-renegotiation scheme, (divisive, selective debt forgiveness will not work for obvious reasons). It's either that or our economic system will collapse.

Despite stuffing them with more than enough cash to deal with the personal debt problem in this country, there is still no suggestion that our banks should be made to take some responsibility for their rapacious greed and inept regulation.

Blindly hoping that property prices will explode again is self-defeating if we want to become a competitive economy. Inflated mortgages require inflated wages to support them — one of the reasons that the Croke Park deal is so staunchly defended is due to the amount of personal debt that many public servants struggle under.

Debt renegotiation will mean lower mortgage payments. Lower mortgage and rent costs mean that lower wages can be paid and yet disposable income will still increase, adding much-needed vigour to the economy.

But then I would say that, wouldn't I? However, this time I'm in good company — with those brave souls who were lectured for “moaning and cribbing” and with economists of the stature of Joe Stieglitz and Paul Kruger. (I ignore representatives from the likes of Goldman Sachs, etc).

But still the phrase “moral hazard” is repeated ad nauseam in connection with the merest suggestion of debt renegotiations for the average householder.

When one considers Irish examples of real moral hazard in action — the recapitalisation of Irish banks from Irish taxes (the second time for AIB); full payment to bondholders from bankrupt banks; the rewarding of inept financiers and politicians with bonuses and gold-plated pensions — you'd be forgiven for thinking you'd wandered into a play from Mr Swift.

The ability to ignore reality is a central part of feeling “fey”, as beautifully demonstrated by those in our banks, Government and other institutions who remain convinced that the already beaten Irish family will keep on taking sole responsibility for these immoral debts — including by depriving their children of necessities.

We paid off the banks; we pay all the inflated salaries and benefits of our top public servants, despite the fact that we are bankrupt. We continue to pay for the gross errors of those who walked off into the sunset with a pile of cash.

We want a break. We want justice. We want more than lip-service mumblings about moving mortgages around.

What we don't want is lectures about moral hazard.